Wrong Sanction for Reopening u/s 151 Invalidates Income Tax Proceedings: Supreme Court Upholds Bombay HC Ruling [Read Order]

In a recent development, the Supreme Court upheld the Bombay High Court’s ruling that the Income Tax Department had obtained approval from the wrong authority for reopening an assessment, rendering the reassessment invalid.

The matter arose from a batch of writ petitions before the Bombay High Court related reassessment notices issued for Assessment Years 2016-17 and 2017-18.

The petitioners including Adil Aspi Engineer and others argued that the sanction for issuing notices under Section 148 was taken from the Principal Commissioner or Commissioner, even though the law required approval from the Joint Commissioner when more than four years had passed from the end of the relevant assessment year and no earlier scrutiny assessment existed.

Sanction for issue of notice.

151. (1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 except by an Assessing Officer of the rank of Assistant Commissioner or Deputy Commissioner:

Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.

(2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Deputy Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Deputy Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.”

Before the High Court, the petitioners’ counsel argued that an invalid sanction automatically vitiates the reassessment notice and all consequential orders, including any assessment order, demand, or penalty. The counsel explained that when the prescribed authority does not grant approval, the statutory precondition for reopening is not met.

As the reopening notices were issued based on a sanction obtained from an authority not empowered under Section 151(2), the entire exercise lacked legal foundation. The Revenue argued that the reopening was valid and that the sanction granted should be considered sufficient.

The High Court pointed out that the statutory scheme under Section 151 distinguishes between authorities competent to grant sanction depending on the age of the assessment year and the nature of earlier assessment proceedings.

The court observed that where the Act mandates sanction from a specific authority, compliance is mandatory and not procedural. The Court explained that using the wrong authority invalidates the reopening itself.

Relying on its earlier judgment in Siemens Financial Services Pvt. Ltd., the High Court observed that this defect in sanction went to the root of jurisdiction. The Bombay High Court concluded that the reassessment notices and all consequential proceedings were invalid and quashed them. It held that since the sanction was defective, the very jurisdiction to reopen was absent. This reasoning applied to all petitions in the batch.

The Income Tax Department challenged the decision before the Supreme Court. After hearing both sides, the bench comprising Justice J.B. Pardiwala and Justice Alok Aradhe observed that there was no ground to interfere with the Bombay High Court’s judgment. It upheld the quashing of the reassessment notices, reaffirming that reopening an assessment based on sanction from the wrong authority is invalid in law.

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